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($$$MR. MARKET$$$ is a proprietary investor and does not provide individual financial advice. The stocks mentioned on this forum do not represent individual buy or sell recommendations and should not be viewed as such. Individual investors should consider speaking with a professional investment adviser before making any investment decisions.)
When it comes to the markets, people sometimes act like sheep. They’ll follow the ANAL-ysts and do what they tell them. Then, all they hear from the ANAL-ysts is that it’s so difficult to beat the market. However this makes no sense. It’s very easy to underperform the market – ANAL-ysts do it all the time. Obviously, if people are underperforming the market, by definition, there has to be people outperforming the market. Average returns are for average investors, superior returns are for superior investors. Don’t be a sheep. Don’t be a lamb, or else you might look up and have a lime smack you right in the face.
It’s a wireless world…we’re just living in it. Wireless tech is one of the largest carriers of digital data in the world today. This pattern of growth has been nothing short of insane. Every business depends on wireless technology in some part of their infrastructure to survive. Of course the future is already scripted, wireless technology will have more devices and features. Smartphones are now able to equal computers in their ability to receive and process data. You need semiconductors to create the wireless world. But you can’t just snap your fingers and create semiconductors. Someone has to make them and someone else has to make the stuff that makes the semiconductors. Lam Research makes, designs and rebuilds semiconductor processing systems for companies in the tech and semi sectors.
Today I bought LAM Research (LRCX) at 165.94. I will sell it in 4 to 6 weeks at 191.02. Here’s why I love LRCX. First of all, look at this ridiculous chart:
This stock, with a market cap of 27 billion, is up 77% in the last 12 months, yet its PE sits modestly at 21. May I remind you, this is a tech stock. A red hot tech stock, which has a PE lower than McDonalds….a company that makes cheeseburgers. What growth prospects do you like better? Smartphones, or cheeseburgers?
LAM Research still trades at 12 times its forward estimated earnings. That means the stock trades at a 50% discount to the S&P 500 forward ratio. As I mentioned, LAM doesn’t make the chips themselves, but it does make the equipment that companies use to put flash memory into the semiconductors that are used in Iphones and Google’s self driving cars (DRAM and NAND memory chips). Flash memory is the giant leap that got us away from disk drives and allows us to store movies on thumb drives. As far as current growth drivers are concerned, the most significant are cloud computing, big data and artificial intelligence that are creating enormous new demand for servers and data centers. Now I could go into the details of what LAM actually makes, but it’s pretty technical, and I don’t really understand them. Let’s just call them widgets…but boy do these widgets sell.
If you don’t believe this industry is red hot, just look at the sales and earnings for LAM over the last 5 years:
2017 8.0
2016 5.9
2015 5.3
2014 4.6
2013 3.6
Now look at the earnings…oh my GOD!:
2017 1.7
2016 0.9
2015 0.7
2014 0.6
2013 0.1
It’s exploding like a volcano in Iceland. For the first quarter of 2017, semi equipment sales were $13 billion, a 60% increase YOY. You find that surprising? Would you have imagined 5 years ago instant access to maps on your cellphone and internet when you were flying in an airplane? In the medical field, “digital plasters” monitor and transmit patient vital signs. That’s how fast we are moving.
First we were 2G…now we are 4G. IN 2020 we will see 5G networks and billions and billions of smartphone users…all using wireless…all needing semiconductors…many of which put together with the help of LRCX.
Surpisingly, the hungriest market for semiconductor devices is automotive (infotainment, navigation, etc)…you know the stuff that distracts you when you drive and always breaks and is expensive to repair because your mechanic says “Ya…I know how to fix that…” but he really has no idea. But wait til we see those self driving cars…you want to talk semiconductors now??? But I digress…
Oh by the way…have you ever heard of Netflix streaming…? Yup..more semiconductors. Oh..do your kids play videogames online? Or on their smartphones when they are supposed to be doing homework? Yup..more semiconductors. Did I mention, HDTV, Fitbits, smart watches, thermostats, Wifi cameras, smart home systems, drones, Alexa, ok Google? Yup semiconductors, semiconductors, semiconductors, semiconductors, semiconductors, semiconductors, semiconductors, semiconductors… Developments in the semiconductor industry determine the way we work, transport ourselves, communicate, entertain ourselves, defend ourselves and respond to our environment. No fooling.
Worldwide semiconductor revenue is forecast to total US$386 billion this year, an increase of 12.3% from last year. Double digit growth from an industry already that big? That’s nuts….but it’s very good for LAM Research.
Last month, LAM beat ANAL-yst’s quarter sales and earnings targets and increased guidance for next quarter. Lam earned $3.11 a share on sales of $2.34 billion in the quarter. ANAL-ysts were expecting $3.03 and $2.32 billion. In the year-earlier period, Lam earned an adjusted $1.80 a share on sales of $1.55 billion. Next quarter, Lam expects to earn $3.25/share.
For the year, the company posted revenue of $8.01 billion, up 36.1% on a year-over-year basis. Fourth-quarter revenue came around $2.34 billion compared to the consensus of $2.31 billion. Full-year GAAP EPS was $9.24, a 77% year-over-year increase. Oh yeah, LRCX also pays a dividend.
This is a very healthy company. Return on Assets is 9.8%. Return on Equity is 26.7%. Cash flow is robust.
So turning the page to where we are going:
$$$MR. MARKET$$$ projects next year’s revenue at 11.5 billion (yes, up 42% over last year). As margin growth expands, so will profitability…I am talking $14.22/share. As revenues have grown rapidly, cost of goods sold increase have increased more slowly. It’s a money machine. If the company maintains its PE at 21, that would project to a share price of $298 which is well past my selling target.
Here’s what the boss has to say about his company:
"Lam delivered another record quarter for shipments, revenue and non-GAAP operating income in June, capping a record fiscal 2017 highlighted by over eight and a half billion dollars in shipments and nearly ten dollars in non-GAAP diluted earnings per share," said Martin Anstice, Lam Research's President and Chief Executive Officer. "Demand trends in our key end markets have improved, and we are on track once again to outperform overall industry growth in calendar 2017. Longer-term, our increased strategic relevance enabling a new generation of technology innovations, combined with broad competitive strength, deliver a compelling value creation opportunity for Lam."
CEO Martin Anstice said it was "another record quarter for shipments, revenue and non-GAAP operating income,” and a record fiscal year as well, "highlighted by over eight and a half billion dollars in shipments and nearly ten dollars in non-GAAP diluted earnings per share."
When I am done with this trade, I am going to donate a percentage of my profits to the Hurricane Harvey relief fund of my choice. Then I am going to cut up some limes and put them in my Corona. The concept of liming encompasses any leisure activity entailing the sharing of food and drink, the exchange of tall stories, jokes and anecdotes etc., provided the activity has no explicit purpose beyond itself. Then I am going to take the rest of my limes and throw them at a picture of LAM because I will be so happy.
I am HUGE!
Bring me your finest meats and cheeses!
$$$MR. MARKET$$$
When it comes to the markets, people sometimes act like sheep. They’ll follow the ANAL-ysts and do what they tell them. Then, all they hear from the ANAL-ysts is that it’s so difficult to beat the market. However this makes no sense. It’s very easy to underperform the market – ANAL-ysts do it all the time. Obviously, if people are underperforming the market, by definition, there has to be people outperforming the market. Average returns are for average investors, superior returns are for superior investors. Don’t be a sheep. Don’t be a lamb, or else you might look up and have a lime smack you right in the face.
It’s a wireless world…we’re just living in it. Wireless tech is one of the largest carriers of digital data in the world today. This pattern of growth has been nothing short of insane. Every business depends on wireless technology in some part of their infrastructure to survive. Of course the future is already scripted, wireless technology will have more devices and features. Smartphones are now able to equal computers in their ability to receive and process data. You need semiconductors to create the wireless world. But you can’t just snap your fingers and create semiconductors. Someone has to make them and someone else has to make the stuff that makes the semiconductors. Lam Research makes, designs and rebuilds semiconductor processing systems for companies in the tech and semi sectors.
Today I bought LAM Research (LRCX) at 165.94. I will sell it in 4 to 6 weeks at 191.02. Here’s why I love LRCX. First of all, look at this ridiculous chart:
This stock, with a market cap of 27 billion, is up 77% in the last 12 months, yet its PE sits modestly at 21. May I remind you, this is a tech stock. A red hot tech stock, which has a PE lower than McDonalds….a company that makes cheeseburgers. What growth prospects do you like better? Smartphones, or cheeseburgers?
LAM Research still trades at 12 times its forward estimated earnings. That means the stock trades at a 50% discount to the S&P 500 forward ratio. As I mentioned, LAM doesn’t make the chips themselves, but it does make the equipment that companies use to put flash memory into the semiconductors that are used in Iphones and Google’s self driving cars (DRAM and NAND memory chips). Flash memory is the giant leap that got us away from disk drives and allows us to store movies on thumb drives. As far as current growth drivers are concerned, the most significant are cloud computing, big data and artificial intelligence that are creating enormous new demand for servers and data centers. Now I could go into the details of what LAM actually makes, but it’s pretty technical, and I don’t really understand them. Let’s just call them widgets…but boy do these widgets sell.
If you don’t believe this industry is red hot, just look at the sales and earnings for LAM over the last 5 years:
2017 8.0
2016 5.9
2015 5.3
2014 4.6
2013 3.6
Now look at the earnings…oh my GOD!:
2017 1.7
2016 0.9
2015 0.7
2014 0.6
2013 0.1
It’s exploding like a volcano in Iceland. For the first quarter of 2017, semi equipment sales were $13 billion, a 60% increase YOY. You find that surprising? Would you have imagined 5 years ago instant access to maps on your cellphone and internet when you were flying in an airplane? In the medical field, “digital plasters” monitor and transmit patient vital signs. That’s how fast we are moving.
First we were 2G…now we are 4G. IN 2020 we will see 5G networks and billions and billions of smartphone users…all using wireless…all needing semiconductors…many of which put together with the help of LRCX.
Surpisingly, the hungriest market for semiconductor devices is automotive (infotainment, navigation, etc)…you know the stuff that distracts you when you drive and always breaks and is expensive to repair because your mechanic says “Ya…I know how to fix that…” but he really has no idea. But wait til we see those self driving cars…you want to talk semiconductors now??? But I digress…
Oh by the way…have you ever heard of Netflix streaming…? Yup..more semiconductors. Oh..do your kids play videogames online? Or on their smartphones when they are supposed to be doing homework? Yup..more semiconductors. Did I mention, HDTV, Fitbits, smart watches, thermostats, Wifi cameras, smart home systems, drones, Alexa, ok Google? Yup semiconductors, semiconductors, semiconductors, semiconductors, semiconductors, semiconductors, semiconductors, semiconductors… Developments in the semiconductor industry determine the way we work, transport ourselves, communicate, entertain ourselves, defend ourselves and respond to our environment. No fooling.
Worldwide semiconductor revenue is forecast to total US$386 billion this year, an increase of 12.3% from last year. Double digit growth from an industry already that big? That’s nuts….but it’s very good for LAM Research.
Last month, LAM beat ANAL-yst’s quarter sales and earnings targets and increased guidance for next quarter. Lam earned $3.11 a share on sales of $2.34 billion in the quarter. ANAL-ysts were expecting $3.03 and $2.32 billion. In the year-earlier period, Lam earned an adjusted $1.80 a share on sales of $1.55 billion. Next quarter, Lam expects to earn $3.25/share.
For the year, the company posted revenue of $8.01 billion, up 36.1% on a year-over-year basis. Fourth-quarter revenue came around $2.34 billion compared to the consensus of $2.31 billion. Full-year GAAP EPS was $9.24, a 77% year-over-year increase. Oh yeah, LRCX also pays a dividend.
This is a very healthy company. Return on Assets is 9.8%. Return on Equity is 26.7%. Cash flow is robust.
So turning the page to where we are going:
$$$MR. MARKET$$$ projects next year’s revenue at 11.5 billion (yes, up 42% over last year). As margin growth expands, so will profitability…I am talking $14.22/share. As revenues have grown rapidly, cost of goods sold increase have increased more slowly. It’s a money machine. If the company maintains its PE at 21, that would project to a share price of $298 which is well past my selling target.
Here’s what the boss has to say about his company:
"Lam delivered another record quarter for shipments, revenue and non-GAAP operating income in June, capping a record fiscal 2017 highlighted by over eight and a half billion dollars in shipments and nearly ten dollars in non-GAAP diluted earnings per share," said Martin Anstice, Lam Research's President and Chief Executive Officer. "Demand trends in our key end markets have improved, and we are on track once again to outperform overall industry growth in calendar 2017. Longer-term, our increased strategic relevance enabling a new generation of technology innovations, combined with broad competitive strength, deliver a compelling value creation opportunity for Lam."
CEO Martin Anstice said it was "another record quarter for shipments, revenue and non-GAAP operating income,” and a record fiscal year as well, "highlighted by over eight and a half billion dollars in shipments and nearly ten dollars in non-GAAP diluted earnings per share."
When I am done with this trade, I am going to donate a percentage of my profits to the Hurricane Harvey relief fund of my choice. Then I am going to cut up some limes and put them in my Corona. The concept of liming encompasses any leisure activity entailing the sharing of food and drink, the exchange of tall stories, jokes and anecdotes etc., provided the activity has no explicit purpose beyond itself. Then I am going to take the rest of my limes and throw them at a picture of LAM because I will be so happy.
I am HUGE!
Bring me your finest meats and cheeses!
$$$MR. MARKET$$$
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